Strong price movements after vaccine news

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About one week ago the pharmaceutical company Pfizer announced positive results of its research into a vaccine against the coronavirus. The major US pharmaceutical company from New York announced that phase 3 of its research into the vaccine shows that it is effective in 90% of the cases. Fantastic news of course. The high percentage of effectiveness offers hope for fighting the pandemic which has been turning the world upside down for almost a year now. The financial markets reacted quite strongly to this news.

Although the news is undoubtedly positive, it does not mean that the entire situation has been resolved immediately. It will probably take months before the vaccine might actually be used on a large scale. The research is not yet fully completed. Even if all goes well, medical supervisors will still have to approve it. Subsequently, the vaccine will have to be produced on a large scale. Finally, distribution will have to take place in all the different countries. Returning to “normal” within a few weeks will certainly not be the case. Some reticence regarding this positive news would therefore be rational.

Apparently, financial markets thought differently. After the announcement of the news, stock markets reacted strongly. Many stocks went up in double digits. As an investor, one will – unfortunately – rarely experience such a jump up on the stock markets. I witnessed the stock market reaction “live” from my computer screen. Even for me, this was anything but a normal day at the financial markets.

Although days like these will be rare, it is interesting to analyze what exactly happened last week. Regardless of whether the price reaction to the positive news is justified or not, as an investor, it is wise to analyze which price movements took place after the news reached the wider public. It provides a good insight into the current stock market sentiment and offers a foretaste of how the stock exchanges might react if indeed a vaccine is put into use. Perhaps it is obvious which stocks and sectors respond positively to such news and which do not.

Nevertheless, as an investor, it is useful to have an overview of the price movements. Below follows an explanation of the Dutch stock market movements last week.

 The big winner 

After the news was announced, the big winner of the day soon emerged: Air France-KLM. The price shot up by almost 25%, from € 3.25 to € 4.00 within a few hours. Earlier this year, before corona, the stock traded almost at a price of € 10.00. Not quite back to that level, but rising so strongly within a few hours does not happen often. The airline has an unprecedented bad year due to the corona crisis.

Back to the gym? 

Besides Air France-KLM, there are more companies that are severely affected by the corona crisis. Basic-Fit, the fitness company with branches all over Europe, was forced to close a lot of locations due to lockdown measures. Although the stock was already on the rise the week before the positive vaccine news, the news was received with open arms by investors. The price was € 24.50 before noon but climbed to above € 30.00 at the end of the day. A significant increase of more than 20% in just a few hours. At the beginning of this year, the price was close to € 35.00 and the price is now starting to go in that direction again.

Retail real estate funds are rising sharply

Besides airlines and closed gyms, there is another sector that has been severely impacted by the corona crisis. Real estate funds which mainly invest in shopping centers saw their stock prices evaporate this year. So did Unibail-Rodamco-Westfield (URW), with tens of billions of assets, most of which are shopping center real estate. The price of the real estate giant hovered above € 140.00 at the beginning of the year. At the end of September, the share price fell to a low below € 30.00. It will come as no surprise that the positive news is well received by Unibail. On the day of the vaccine news, the price rose from around € 35.00 to almost € 45.00.

The smaller Eurocommercial Properties, whose portfolio also consists mainly of retail real estate, also rose sharply. The stock was trading at around € 10.00 at the start of the day and managed to rise to almost € 12.00. A significant increase, but with a price of almost € 25.00 at the beginning of the year, this share is also trading significantly lower.

Financials and banks are benefiting significantly

Shares in Aegon, ABN AMRO, and ING were up double digits. Banks likely will see fewer loans that have to be amortized because of the debtors’ inability to meet payment obligations. The price increase for this sector is significant, but the prices are still considerably lower compared to the period before the corona crisis.

Wholesaler Sligro is waiting for the end of the corona crisis 

Another share which has been hit hard by the corona crisis is Sligro. The wholesaler mainly supplies catering companies and restaurants. It is clear that Sligro suffered heavily because of the closed catering industry. Whereas before the crisis the price was still above € 25.00, it has been trading around half that price in recent months. On Monday, the share rose from €13.20 to € 15.20 to partially make up for the initial price drop.

Oil price is rising, Shell is moving with it 

In addition to stock prices, the oil price also took off on the day that the vaccine news was released with an increase of around 8%. In line with this, the oil giant Shell also managed to make investors happy. The stock was up almost 13% on Monday which is significantly lower than the € 27.00 at the beginning of this year, but it remains a notable increase.

The only way is up?

It was not only good news for the stock market. Just Eat Takeaway shares slid severely on the Dutch stock exchange. The meal delivery platform benefits enormously from the lockdowns and closure of the catering industry. At the beginning of the year, the price was around € 83.00, but due to the corona crisis, it managed to rise above € 100.00. Last week, there was an unexpected correction on Monday. The price fell from above € 102.00 to below € 92.00.

The upcoming weeks

It will be interesting to see if these new price levels will be maintained in the coming weeks. The increase in prices was strong, but for now, the big gainers seem to be holding on to the new prices. Yet many of the shares which saw their prices increase sharply are still trading drastically below their stock market prices at the beginning of the year. Although this vaccine news is positive, it remains a difficult year for a lot of companies. Corona will not be out of the world for the time being and it remains to be seen how the prices of these companies, in particular, will develop in the coming months. Nevertheless, this vaccine news appears to be a strong catalyst to push prices considerably higher in just a few hours.

Interested in investing?

I am an active member at A&F Investments, an investment team facilitated by study association Asset | Accounting & Finance. If you as a student are also interested in investing, we would like to get in touch with you. Check out our web page or our LinkedIn to learn more about A&F Investments. You can always send me a message if you have any questions about the committee.